Manj Kalar: The civil service's finance professionals must rise to the Brexit challenge

Economic uncertainty in the wake of the Brexit vote will mean taking a fresh look at public spending – but civil servants are adept at navigating  uncharted waters, says Manj Kalar of the Association of Chartered Certified Accountants (ACCA)

Having agreed a Spending Review only last year, fresh work will be required from finance professionals to once negotiate spending settlements. Image: Fotolia

By Manj Kalar

20 Jul 2016

Less than a month has passed since the country decided to vote to leave the EU. Yet, in that time, we have seen almost unprecedented levels of change to the political landscape here in the UK.

As the new cabinet ministers begin to settle into their roles, it once again falls to the civil service to manage the transition seamlessly and without fuss – all the while extolling its traditional values of integrity, honesty, objectivity and impartiality. Not to mention a heavy dose of stoicism, I should think.

The new chancellor, Philip Hammond, used his first address to state that the UK faces an entirely new set of parameters given the economic shock dealt to the global economy by Brexit. That meant George Osborne's deficit reduction plan, to achieve a budget surplus by 2020, was to be kicked into the long grass. But will this mean a reprieve for the public sector?

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The budget deficit remains, and debt interest repayments rose as a result of the downgrade of the UK government’s credit rating. The latest Whole of Government Accounts highlights the sheer magnitude of the UK's liabilities: non-current liabilities have risen over 50% over the last five years, with public sector pensions making up a large proportion of this at £2755bn – or 54% – to be exact. If the new accounting standard on social benefits that is currently being developed by the international Accounting Standards Board is adopted, the state pension liability would need to be included too, dwarfing the public sector pension numbers.

While this information is not new, no one has yet had the courage to confront the elephant in the room. As one former chancellor famously stated, the UK only has one religion, the NHS. Perhaps, given the clearly unsustainable nature of the status quo, it is time to look at alternative funding models for the health service. It has long been considered political suicide to suggest any form of major change to our beloved health service, but with the debate about its funding brought front and centre by the EU referendum, perhaps the moment has finally come.

"As anyone who has been through massive change will know, it takes valuable resources away from public service delivery to focus on aligning budgets and resources, as well as transfering assets, policy functions, and people"

The Autumn Statement in November will need to provide more detail. Having agreed a Comprehensive Spending Review only last year it seems that fresh work will be required from finance professionals and other specialist civil servants to once negotiate spending envelopes for their departments. The added challenge is that no one fully understands the financial implications of Brexit and so the size of the fiscal envelope to conduct the spending review within is also not yet clear.

Machinery of government changes

Meanwhile, two new departments – the Department for Exiting the European Union and the Department for International Trade – have been created, while the Department of Energy and Climate Change ceases to exist and will henceforth be rolled into a new Department for Business, Energy and Industrial, Strategy. Responsibility for higher and further education policy moves to the Department for Education. 

Prior to 2010, such changes were quite the norm. Since the advent of the coalition government, however, Cameron was reluctant – "bonfire of the quangos" aside – to make significant changes to the machinery of government. This brought some welcome stability. As anyone who has been through massive change will know, it takes valuable resources away from public service delivery to focus on aligning budgets and resources, as well as transfering assets, policy functions, and people.

With Theresa May swiftly and ruthlessly ringing the changes, the challenge now is to maintain delivery of the business of government, as roles and responsibilities change along with the overhaul in departmental structure.

Redefining of relationships, worldwide

Alongside wholesale domestic change, there is the small matter of redefining the UK’s relationship with the EU and the rest of the world to throw into the mix. Speaking to my ACCA colleagues from as far afield as Singapore, Nigeria and the United States, it is clear that there is a huge amount of global interest in just what the UK will do next. Many of these relationships will be starting afresh – and this is an opportunity to not only re-establish old links, but to learn from other nations who do things differently to us.

This is an unprecedented time, and the financial pressures on government resources are increasing and will continue to do so. Finance will be at the heart of decision-making, and now is not the time to lose sight of all that has been achieved by the Treasury's Financial Management Reform (FMR) programme, or its predecessor, Managing Public Money Wisely, launched by the-then economic secretary to the Treasury and a qualified accountant, Justine Greening. 

Everyone will need to use their talent, expertise and experience to navigate these uncharted waters. But I am comforted by the knowledge that this is exactly what the civil service is good at.

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